On 7 October, 2016 President Obama signed Executive Order 13742 entitled, “Termination of Emergency With Respect to the Actions and Policies of the Government of Burma” effectively terminating the Burma Sanctions Regulations (BSR) a collection of U.S. Department of Treasury Office of Foreign Assets Control (OFAC) administered laws and executive orders originating from 1997 which prohibited or restricted U.S. persons (individuals or companies) from investing and doing business with certain Specially Designated Nationals (SDNs) in Myanmar. Concurrently with the BSR lifting under Executive Order 13742, Congress was also notified to waive certain legislative sanctions against Myanmar as well effectively removing the last vestiges of the BSR from the U.S. Code of Federal Regulations (31 C.F.R. part 537), and eliminating all remaining Burma (officially known as Myanmar)-specific financial and trade sanctions previously imposed on U.S. persons and financial institutions.
What Has Changed:
The following represents the current state of affairs after the BSR termination:
Removal for all individuals and entities previously blocked under the Burmese Sanctions Regulations (BSR) (31 C.F.R. Part 537) have now been removed from OFAC’s Specially Designated Nationals and Blocked Persons List together with all property and interests in property which were previously blocked.
Prior bans on U.S.-import bound jadeite and rubies of Burmese origin have now been revoked.
The mandatory reporting requirements imposed on U.S. nationals and companies investing in Myanmar by the U.S. State Department’s Responsible Investment Reporting Requirements Program have been amended to now be voluntary.
Pursuant to Executive Order 13742, all OFAC-administered restrictions under the BSR relating to banking or financial transactions have been terminated, and OFAC will remove the BSR from the Code of Federal Regulations. Now U.S. Persons (individuals and companies) are free to open accounts and transact business with all the remaining delisted banks in Myanmar including Innwa Bank and Myawaddy Bank as of 7 October, 2016.
In 2003, under Section 311 of the U.S. Patriot Act, Myanmar was designated a “primary money laundering concern” by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This designation prohibited U.S. banks from maintaining correspondent accounts for Burmese banks. Rather than revoke Section 311’s application to Myanmar however, FinCEN instead issued an administrative exception provisionally releasing U.S. financial institutions from prohibitions on maintaining correspondent accounts for Myanmar banks. This in effect will allow Myanmar banks to receive correspondent services with U.S. financial institutions, subject to appropriate due diligence requirements with OFAC. Applying a “carrot and stick approach” FinCEN plans to completely remove Section 311’s application once Myanmar has made sufficient progress in addressing corruption, accountability, terrorism, narcotics trafficking and anti-money laundering (AML) issues. The enhanced due diligence obligations are found under Section 312 of the U.S. PATRIOT Act and its implementing regulations 31 C.F.R. § 1010.610 & 1010.651. Under Section 312, applicable financial institutions and banks must put in place enhanced due diligence policies and procedures reasonably designed to uncover and report known or suspected money laundering activity.
Although the BSR have been completely removed, the U.S. government through OFAC can still investigate and enforce pre-October 7, 2016 sanctions violations, “historical violations” so potential liability for prior violations is still in place.
One of the biggest points of confusion with the sanctions lifting is that while all the sanctions related to the BSR have been effectively removed, certain Myanmar individuals or entities may still be re-designated under other U.S. sanctions programs for example counter-narcotics or for supporting the North Korea regime, and it is believed that over thirty SDNs who are located in Myanmar continue to be listed under drug trafficking (Foreign Narcotics Kingpin Sanctions program) and North Korea sanctions programs including Yangon Air and some of its principals as well as several gem, mining, textile, agricultural, and construction companies. For these SDN’s, U.S. persons (individuals and companies) must still exercise diligence as transactions with these SDN’s and their property still remain blocked or prohibited if 50 percent or more of a company is owned, directly or indirectly, by one or more persons on these other SDN lists even if the company is not listed on an SDN list itself.
The U.S. Dept. of Defense and Bureau of Political-Military Affairs still restrict arms and weapons trade with the Myanmar military, and any U.S. company seeking to make such sales would first need to obtain all the proper export licenses under the Foreign Military Sales system.
The Executive Order 13742 which revokes Executive Orders 13047, 13310, 13448, 13464, 13619, 13651 reissues a waiver for financial and blocked transactions prohibited under the Tom Lantos Block Burmese Jade Act (2008) connected with entities and officials of the State Peace and Development Counsel (military junta government from 1988 to 2011), and the Union Solidarity and Development Party (USDP) for human rights violations under Section 5(b) of the Act. While a number of the Act’s provisions have expired, the law itself is not being rescinded, leaving a possible U.S. visa ban against certain Burmese military officials in place which were not rescinded under the termination of Presidential Proclamation 6925 on 2 May, 2013.
It should also be noted that President Obama announced on September 14, 2016 that he would restore Myanmar’s duty-free trade benefits under the Generalized System of Preferences (GSP) which is scheduled to take effect on November 13, 2016 providing duty-free treatment on more than 5,000 products to be exported to the United States.
And the Financial Action Task Force (FATF), an international inter-governmental policy making body established in 1989 which “black-listed” Myanmar as a jurisdiction with strategic Anti-Money Laundering (AML)/Counter-Financing of Terrorism (CFT) deficiencies in 2004 has since removed Myanmar from the black list to a grey list, and now completed removed Myanmar from any deficiencies as of June 2016.
These actions taken above together with the BSR lifting should assuage many of the legal concerns U.S. persons, companies (and others) have had with investing in Myanmar. These changes are expected to create new opportunities for U.S. businesses going forward. Except as discussed above, by lifting the sanctions, the U.S. government has eliminated much of the legal risk in doing business with former SDN-listed individuals and entities, but investors may still want to consider the possible reputational and political risks involved with same where former Burmese SDN military-connected individuals and entities views and past deeds may clash with that of State Counsellor Aung San Suu Kyi and her party, the National League for Democracy (NLD).
Also, to allow and increase sorely-needed U.S. dollar transactions, Myanmar banks will need to continue efforts to forge alliances (correspondent banking relationships) with U.S. financial institutions as this remains the largest impediment to the country’s growth. This will only happen however after FinCEN is satisfied with the progress undertaken to address the anti-money laundering concerns. Further, it is still unclear whether FinCEN’s exception will be enough to outweigh the enhanced due diligence which must be undertaken by U.S. financial institutions under Section 312 of the PATRIOT Act.
If you have any questions on the content of this Legal Alert or wish to discuss anything about this matter in further detail, please feel free to contact: Samuel Britton (Partner) or Geraldine Oh (Senior Associate).
This alert is for general information only and is not a substitute for legal advice.